SUNRISE REAL ESTATE GROUP INC - Quarter Report: 2022 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 000-32585

SUNRISE REAL ESTATE GROUP, INC.

(Exact name of registrant as specified in its charter)

Texas

75-2713701

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

No. 18, Panlong Road,

Shanghai, PRC 201702

(Address of Principal Executive Offices) (Zip Code)

Issuer’s telephone number: + 86-21-6139-8018

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: November 21, 2022 –68,691,925 shares of Common Stock

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FORM 10-Q

For the Quarter Ended September 30, 2022

INDEX


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations for The Three Months and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for The Nine Months Ended September 30, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

SIGNATURES		30

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Expressed in U.S. Dollars)


	September 30,		December 31,
	2022		2021
ASSETS

Current assets
Cash and cash equivalents	$	10,607,248	$	24,901,044
Restricted cash (Note 3)		47,352,466		73,010,575
Transactional financial assets (Note 4)		38,796,665		13,890,946
Accounts receivable		206,452		65,850
Real estate property under development (Note 5)		121,416,669		178,685,026
Amount due from an unconsolidated affiliate		16,197,975		15,837,851
Other receivables and deposits, net (Note 6)		13,527,100		15,241,563
Total current assets		248,104,575		321,632,855

Property and equipment, net (Note 7)		1,055,918		1,238,416
Investment properties, net (Note 8)		22,594,588		26,340,669
Deferred tax assets (Note 18)		—		853,364
Investment in an unconsolidated affiliate (Note 9)		12,508,245		14,320,943
Goodwill (Note 11)		1,116,925		1,855,655
Other investments (Note 10)		640,264		712,981
Total assets	$	286,020,515	$	366,954,883

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current liabilities
Promissory notes payable (Note 12)		1,408,490		1,568,455
Accounts payable (Note 15)		21,368,935		25,120,074
Amounts due to directors (Note 13)		449,840		525,396
Amount due to an affiliate (Note 16)		49,284,279		20,489,304
Customer deposits (Note 17)		44,404,826		126,175,201
Other payables and accrued expenses (Note 14)		7,460,892		8,819,132
Other taxes payable		228,564		404,833
Income taxes payable (Note 18)		1,632,965		683,957
Dividends payables		10,303,789		10,303,789
Total current liabilities		136,542,580		194,090,141

Long-term income tax payable (Note 18)		1,294,107		2,243,118
Total liabilities		137,836,687		196,333,259

Commitments and contingencies (Note 19)

Shareholders’ equity
Common stock, par value $0.01 per share; 200,000,000 shares Authorized; 68,691,925 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		686,919		686,919
Additional paid-in capital		8,050,008		8,050,008
Statutory reserve (Note 20)		3,986,618		3,986,618
Retained Earnings		116,768,749		117,729,224
Accumulated other comprehensive income		6,654,334		24,738,423
Total deficit of Sunrise Real Estate Group, Inc.		136,146,628		155,191,192
Non-controlling interests		12,037,200		15,430,432
Total shareholders’ equity		148,183,828		170,621,624
Total liabilities and shareholders’ equity	$	286,020,515	$	366,954,883

See accompanying notes to consolidated financial statements.

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SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Expressed in U.S. Dollars)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net revenues	$	22,343,689	$	5,597,194	$	69,107,749	$	14,295,753
Cost of revenues		(19,303,768)		(4,180,541)		(60,833,995)		(11,905,538)
Gross profit (loss)		3,039,921		1,416,653		8,273,754		2,390,215

Operating expenses		(533,435)		(477,979)		(1,504,377)		(2,465,851)
General and administrative expenses		(790,049)		(1,198,736)		(2,613,218)		(2,878,477)
Operating profit (loss)		1,716,437		(260,062)		4,156,159		(2,954,113)

Other income (expenses)
Interest income		98,159		221,250		574,292		765,472
Interest expense		(253,912)		—		(2,598,784)		—
Other income (loss), net		(1,196,173)		348,451		(2,984,763)		33,981,064
Total other Income		(1,351,926)		569,701		(5,009,255)		34,746,536

Income (loss) before income taxes		364,511		309,639		(853,096)		31,792,423

Income tax benefit (expense)		(722,928)		(1,228,207)		(2,081,832)		(1,855,724)
Net income (loss)		(358,417)		(918,568)		(2,934,928)		29,936,699
Less: Net (income) loss attributable to non-controlling interests		(150,003)		(430,393)		1,974,453		(508,037)
Net income attributable to shareholders of Sunrise Real Estate Group, Inc.	$	(508,420)	$	(1,348,961)	$	(960,475)	$	29,428,662
Net income (loss)		(358,417)		(918,568)		(2,934,928)		29,936,699
Other comprehensive income (loss) Foreign currency translation adjustment		(9,933,799)		(595,689)		(19,502,868)		829,408
Discontinuation of the equity method for an investment		—		—		—		—
Comprehensive income (loss)		(10,292,216)		(1,514,257)		(22,437,796)		30,766,107
Less: Comprehensive income (loss) attributable to non-controlling interests		587,955		(414,228)		3,393,232		(2,248,690)
Total comprehensive income (loss) attributable to shareholders		(9,704,261)		(1,928,485)		(19,044,564)		28,517,417
Earnings per share – basic and fully diluted	$	(0.01)	$	(0.02)	$	(0.01)	$	0.43

Weighted average common shares outstanding
Basic and fully diluted		68,691,925		68,691,925		68,691,925		68,691,925

See accompanying notes to unaudited condensed consolidated financial statements.

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SUNRISE REAL ESTATE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)


											Accumulated				Total
	Common Stock				Additional				Retained		Other				Stockholders’
	Number of				Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued		Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
Balance, December 31, 2021		68,691,925	$	686,919	$	8,050,008	$	3,986,618	$	117,729,224	$	24,738,423	$	15,430,432	$	170,621,624
Profit (loss) for the year										(960,475)				(1,974,453)		(2,934,928)
Dividend										—						—
Translation of foreign operations		—		—		—		—		—		(18,084,089)		(1,418,779)		(19,502,858)
Balance, Sept. 30, 2022		68,691,925		686,919		8,050,008		3,986,618		116,768,749		6,654,334		12,037,200		148,183,828


										Accumulated				Total
	Common Stock			Additional				Retained		Other				Stockholders’
	Number of			Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued	Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
Balance, June 30, 2022	68,691,925	$	686,919	$	8,050,008	$	3,986,618	$	117,281,967	$	15,850,175	$	12,625,155	$	158,480,842
Profit (loss) for the year									(513,218)				(334,074)		(847,292)
Dividend															—
Translation of foreign operations	—		—		—		—		—		(9,195,841)		(253,881)		(9,449,722)
Balance, Sept. 30, 2022	68,691,925		686,919		8,050,008		3,986,618		116,768,749		6,654,334		12,037,200		148,183,828

See accompanying notes to consolidated financial statements.

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SUNRISE REAL ESTATE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Expressed in U.S. Dollars)


											Accumulated				Total
	Common Stock				Additional				Retained		Other				Stockholders’
	Number of				Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued		Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
Balance, December 31, 2020		68,691,925	$	686,919	$	7,570,008	$	3,986,618	$	100,291,529	$	22,981,737	$	2,261,537	$	137,778,348
Profit (loss) for the year										29,428,662				508,037		29,936,699
Dividend										(6,869,193)						(6,869,193)
Translation of foreign operations		—		—		—		—		—		(911,245)		1,740,653		829,408
Balance, Sept. 30, 2021		68,691,925		686,919		7,570,008		3,986,618		122,850,998		22,070,492		4,510,227		161,675,262


										Accumulated				Total
	Common Stock			Additional				Retained		Other				Stockholders’
	Number of			Paid-in		Statutory		Earnings		Comprehensive		Non-controlling		(Deficit)
	shares issued	Amount		Capital		Reserve		(Deficits)		Income		Interests		Equity
Balance, June 30, 2021	68,691,925	$	686,919	$	7,570,008	$	3,986,618	$	124,285,908	$	22,650,016	$	4,095,999	$	163,275,468
Profit (loss) for the year									5,434,283				758,447		6,192,730
Dividend											(6,869,193)				(6,869,193)
Translation of foreign operations	—		—		—		—		—		(579,524)		(344,219)		(923,743)
Balance, Sept. 30, 2021	68,691,925		686,919		7,570,008		3,986,618		122,850,998		22,070,492		4,510,227		161,675,262

See accompanying notes to consolidated financial statements.

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SUNRISE REAL ESTATE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Expressed in U.S. Dollars)


	Nine Months Ended Sept. 30,
	2022		2021
Cash flows from operating activities
Net income (loss)	$	(2,934,928)	$	29,936,699

Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization		1,338,556		3,807,266
Loss (Gain) on disposal of property, plant and equipment		39,255		7,217
Bad debts		—		—
Equity in net loss (income) of unconsolidated affiliates		—		(33,775,974)
Changes in assets and liabilities
Accounts receivable		(158,455)		39,343
Real estate property under development		41,996,130		(29,656,947)
Customer Deposits		(74,110,690)		44,188,731
Amount due from unconsolidated affiliates		31,094,696		(14,545,221)
Other receivables and deposits		172,090		(2,261,623)
Deferred tax assets		824,263		(390,748)
Net cash from directors		(23,632)		(23,039,479)
Accounts payable		(1,279,071)		6,372,803
Other payables and accrued expenses		(493,470)		638,426
Dividend		1,130,314		—
Other taxes payable		(145,185)		(208,652)
Income taxes payable		146,768		(349,061)
Net cash provided by (used in) operating activities		(2,403,359)		(19,237,220)

Cash flows from investing activities
Purchases of property and equipment		(192,668)		(29,299)
Net Cash from Transactional financial assets		(28,312,335)		10,669,404
Acquisition of investment		—		—
Dividend distribution of affiliates		—		16,408,055
Net cash provided by (used in) investing activities		(28,505,003)		27,048,160

Cash flows from financing activities
Restricted cash		19,588,608		(21,529,178)
Repayments to directors		—		—
Advances from an affiliate		—		5,004
Repayments to an affiliate		—		—
Dividends paid to shareholders		—		6,869,193
Net cash provided by (used in) financing activities		19,588,608		(28,393,367)

Effect of exchange rate changes on cash and cash equivalents		(2,974,042)		(2,538,314)

Net increase in cash and cash equivalents		(14,293,796)		(23,120,741)
Cash and cash equivalents at beginning of period		24,901,044		40,369,612
Cash and cash equivalents at end of period	$	10,607,248	$	17,248,871

Supplemental disclosure of cash flow information
Income taxes paid	$	—	$	—
Interest paid		—		—

See accompanying notes to consolidated financial statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Sunrise Real Estate Group, Inc. (“SRRE”) was incorporated in Texas on October 10, 1996 under the name of Parallax Entertainment, Inc. SRRE, together with its subsidiaries and equity investment described below, are collectively referred to as “the Company”, “we”, “our” or “us”. The Company is primarily engaged in the provision of property brokerage services, which include property marketing, leasing and management services, and real estate development in the People’s Republic of China (the “PRC”).

As of September 30, 2022, the Company has the following major subsidiaries and equity investment.


			% of Ownership	Relationship
	Date of	Place of	held by the	with the
Company Name	Incorporation	Incorporation	Company	Company	Principal Activity
Sunrise Real Estate Development Group, Inc. (CY-SRRE)	April 30, 2004	Cayman Islands	100%	Subsidiary	Investment holding
Lin Ray Yang Enterprise Limited (“LRY”)	November 13, 2003	British Virgin Islands	100%	Subsidiary	Investment holding
Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”)	August 20, 2001	PRC	100%	Subsidiary	Property brokerage services
Shanghai Shang Yang Investment Management and consultation Company Limited (“SHSY”)	February 5, 2004	PRC	100%	Subsidiary	Property brokerage services
Suzhou Shang Yang Real Estate Consultation Company Limited (“SZSY”)	November 24, 2006	PRC	75.25%¹	Subsidiary	Property brokerage and management services
Suzhou Xi Ji Yang Real Estate Consultation Company Limited (“SZXJY”)	June 25, 2004	PRC	75%	Subsidiary	Property brokerage services
Linyi Shangyang Real Estate Development Company Limited (“LYSY”)	October 13, 2011	PRC	34%²	Subsidiary	Real estate development
Sanya Shang Yang Real Estate Consultation Company Limited (“SYSY”)	September 18, 2008	PRC	100%	Subsidiary	Property brokerage services
Shanghai Rui Jian Design Company Limited (“SHRJ”)	August 15, 2011	PRC	100%	Subsidiary	Property brokerage services
Linyi Rui Lin Construction and Design Company Limited (“LYRL”)	March 6, 2012	PRC	100%	Subsidiary	Investment holding
Wuhan Yuan Yu Long Real Estate Development Company Limited (“WHYYL”)	December 28, 2009	PRC	49%	Equity investment	Real estate development
Zhong Ji Pu Fa Real Estate Company Limited (SHGXL)	March 12, 2012	PRC	100%	Equity investment	real estate development
Shanghai Da Er Wei Trading Company Limited (“SHDEW”)	June 6, 2013	PRC	19.91%³	Equity investment	Import and export trading
Shanghai Hui Tian (“SHHT”)	July 25, 2014	PRC	100%	Subsidiary	Investment holding
Huaian Zhanbao Industrial Co., Ltd. (“HAZB”)	December 6, 2018	PRC	78.46%⁴	Subsidiary	Investment holding
Huaian Tianxi Real Estate Development Co., Ltd (“HATX”)	October, 2018	PRC	78.46%⁴	Subsidiary	Investment holding
Shanghai Taobuting Media Co., Ltd. (“TBT”)	July 1, 2020	PRC	7.5%	Subsidiary	Streaming platform
Shangyang International Pte. Ltd	August 19, 2022	SINGAPORE	100%	Subsidiary	Investment holding

The Company and a shareholder of SZSY, which holds 12.5% equity interest in SZSY, entered into a voting agreement under which the Company is entitled to exercise the voting rights in respect of the shareholder’s 12.5% equity interest in SZSY. The Company effectively holds 75.25% voting rights in SZSY and therefore considers SZSY as a subsidiary of the Company.

The Company and a shareholder of LYSY, which holds 46% equity interest in LYSY, entered into a voting agreement that the Company is entitled to exercise the voting rights in respect of her 46% equity interest in LYSY. The Company effectively holds 80% voting rights in LYSY and therefore considers LYSY as a subsidiary of the Company. On May 27, 2020, LYRL received 10% of the issued and outstanding shares of LYSY from Nanjing Longchang Real Estate Development Group. LYRL owned 34% of LYSY following the purchase.

3	In December 2019, SHDEW issued shares to its employees pursuant to an employee stock bonus. This issuance resulted in the dilution of our ownership of SHDEW from 20.38% to 19.91%.

4	We established HAZB for the purpose of for real estate development in Huai’an through HATX of which we have 78.46% ownership.

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The accompanying condensed consolidated balance sheet as of December 31, 2021, which has been derived from the audited consolidated financial statements and the accompanying unaudited condensed consolidated financial statements, has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of September 30, 2022 and the results of operations for the nine months ended September 30, 2022 and 2021, and the cash flows for the nine months ended September 30, 2022 and 2021. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results which may be expected for the entire fiscal year.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Principles of Consolidation

The condensed consolidated financial statements include the financial statements of Sunrise Real Estate Group, Inc. and its subsidiaries. All significant inter-company accounts and transactions have been eliminated on consolidation.

Investments in business entities, in which the Company does not have control but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method.

Foreign Currency Translation and Transactions

The functional currency of SRRE, CY-SRRE and LRY is U.S. dollars (“$”) and their financial records and financial statements are maintained and prepared in U.S. dollars. The functional currency of the Company’s subsidiaries and affiliates in China is Renminbi (“RMB”) and their financial records and statements are maintained and prepared in RMB.

Foreign currency transactions during the period are translated into each company’s denominated currency at the exchange rates ruling at the transaction dates. Gains and losses resulting from foreign currency transactions are included in the consolidated statement of operations. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into each company’s denominated currency at period-end exchange rates. All exchange differences are dealt with in the consolidated statements of operations.

The financial statements of the Company’s operations based outside of the United States have been translated into U.S. dollars in accordance with ASC830. Management has determined that the functional currency for each of the Company’s foreign operations is its applicable local currency. When translating functional currency financial statements into U.S. dollars, period-end exchange rates are applied to the condensed consolidated balance sheets, while average exchange rates as to revenues and expenses are applied to consolidated statements of operations. The effect of foreign currency translation adjustments is included as a component of accumulated other comprehensive income in shareholders’ equity.

The exchange rates as of September 30, 2022 and December 31, 2021 are $1: RMB7.0998 and $1: RMB6.4854, respectively.

The RMB is not freely convertible into foreign currency and all foreign exchange transaction must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rate used in translation.

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Real Estate Property under Development

Real estate property under development, which consists of residential unit sites and commercial and residential unit sites under development, is stated at the lower of carrying amounts or fair value less selling costs.

Expenditures for land development, including cost of land use rights, deed tax, pre-development costs and engineering costs, are capitalized and allocated to development projects by the specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales value of units to the estimated total sales value times the total project costs.

Costs of amenities transferred to buyers are allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For amenities retained by the Company, costs in excess of the related fair value of the amenity are also treated as common costs. Results of operations of amenities retained by the Company are included in current operating results.

In accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), real estate property under development is subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the assets.

In October 2011, we established LYSY and own 34% of the company. During the first quarter of 2012, we acquired approximately 103,385 square meters for the purpose of developing villa-style residential housing. The LYSY project has divided into three phases at this moment. Phase 1 has completed construction of 121 units in May 2015 and sold 119 units out of all 121 units at the end of September 2022. Phase 2 was divided into north and south area and completed construction of 84 units at the end of 2020. All units have been sold during phase 2. Phase 3 began construction in the first quarter of 2021 and pre-sold 20 units out of 51 units as of September 30, 2022. In September 2020, the Company expanded the Linyi project by purchasing an additional 54,312 square meters for 228 million RMB for future development.

In October 2018, HATX purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters (“sqm”). In December 2018, we established HAZB with a 78.46% ownership for the purpose of real estate investment, and in March 2019, HAZB purchased 100% of HATX and its land usage rights to the Huai’an property. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a gross floor area (“GFA”) of 82,218 sqm totaling 679 units, and started its second phase in 2020 with a GFA of 99,123 sqm totaling 873 units. As of October 31, 2022, the Company sold 669 out of 679 units of the first phase and sold and pre-sold 80 units and 284 units, respectively, out of 873 of the second phase.

Long Term Investments

The Company accounts for long term investments in equities as follows:

Investment in Unconsolidated Affiliates

Affiliates are entities over which the Company has significant influence, but which it does not control. The Company generally considers an ownership interest of 20% or higher to represent significant influence. Investments in unconsolidated affiliates are accounted for by the equity method of accounting. Under this method, the Company’s share of the post-acquisition profits or losses of affiliates is recognized in the income statement and its shares of post-acquisition movements in other comprehensive income are recognized in other comprehensive income. Unrealized gains on transactions between the Company and its affiliates are eliminated to the extent of the Company’s interest in the affiliates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

When the Company’s share of losses in an affiliate equals or exceeds its interest in the affiliate, the Company does not recognize further losses, unless the Company has incurred obligations or made payments on behalf of the affiliate.

The Company is required to perform an impairment assessment of its investments whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. An impairment loss is recorded when there has been a loss in the value of the investment that is not temporary. The Company did not record any impairment losses in any of the periods reported.

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Other Investments

Where the Company has no significant influence, the investment is classified as other assets in the balance sheet and is carried under the measurement alternative which is measured at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer. Investment income is recognized by the Company when the investee declares a dividend and the Company believes it is collectible. The Company periodically evaluates the carrying value of its investment under the measurement alternative method in the case of the investment in SHDEW and any decline in value is included in impairment of cost of the investment.

Revenue Recognition

Most of the Company’s revenue is derived from real estate sales in the PRC. The majority of the Company’s contracts contain a single performance obligation involving significant real estate development activities that are performed together to deliver a real estate property to customers. Revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer. The control of the asset may transfer over time or at a point in time. For the sales of individual condominium units in a real estate development project, the Company has an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset.

All revenues represent gross revenues less sales and business tax.

ASC 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. ASC 606 also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, ASC 606 requires extensive disclosures.

The Company adopted ASC 606 on January 1, 2018 using the modified retrospective approach with no restatement of comparative periods and no cumulative-effect adjustment to retained earnings recognized as of the date of adoption. A significant portion of the Company’s revenue is derived from development and sales of condominium real estate property in the PRC, with revenue previously recognized using the percentage of completion method. Under the new standard, to recognize revenue over time similar to the percentage of completion method, contractual provisions need to provide the Company with an enforceable right to payment and the Company has no alternative use of the asset. Historically, all contracts executed contained an enforceable right to home purchase payments and the Company had no alternative use of assets, therefore, the adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements.

Net Earnings (Loss) per Common Share

The Company computes net earnings (loss) per share in accordance with ASC 260, “Earnings per Share” (“ASC 260”). Under the provisions of ASC 260, basic net earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net earnings (loss) per share recognizes common stock equivalents, however, potential common stock in the diluted EPS computation is excluded in net loss periods, as their effect is anti-dilutive.

Recently Adopted Accounting Standards

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lease components as well as the package of practical expedients that allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. At the date of adoption on January 1, 2022, this guidance had no impact to the Company’s condensed consolidated financial statements.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective for the public companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted this standard on January 1, 2022, which had no material impact to the Company’s condensed consolidated financial statements.

New Accounting Pronouncements

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss new accounting pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

NOTE 3 – RESTRICTED CASH

The Company is required to maintain certain deposits with the bank for those home buyers that have applied for a housing loan from their bank. This deposit is a percentage to each home buyer’s bank loan for the purpose of purchasing a home in our project. Once we complete the transfer to the buyer, these deposits become unrestricted. As of September 30, 2022 and December 31, 2021, the Company held cash deposits of $47,352,466 and $73,010,575, respectively.

NOTE 4 – TRANSACTIONAL FINANCIAL ASSETS

As of September 30, 2022, we had $38,796,665 invested in bank wealth management investment products. The investments have short term maturity periods and can be rolled into a maturity date of our choosing or automatically rolled into subsequent maturity periods. The annualized rate of return may range from 3.15% to 4.4% depending on the amount and time period invested.

NOTE 5 – REAL ESTATE PROPERTY UNDER DEVELOPMENT

Real estate property under development represents the Company’s real estate development project in Linyi, the PRC (“Linyi Project”), which is located on the junction of Xiamen Road and Hong Kong Road in Linyi City Economic Development Zone, Shandong Province, PRC. This project covers a site area of approximately 103,385 square meters for the development of villa-style residential housing buildings. The Company acquired the site and commenced construction of this project during the fiscal year of 2012. We sold 119 of 121 Phase 1 villas, sold 84 villas out of all 84 units in Phase 2, and pre-sold 20 units out of 51 units in Phase 3 as of September 30, 2022.

In the first quarter of 2019, we purchased the property of HATX with the land use rights. As of September 30, 2022, land use rights included in real estate property under development totaled $121,416,669.

In October 2018, HATX purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters (“sqm”). In December 2018, we established HAZB with a 78.46% ownership for the purpose of real estate investment, and in March 2019, HAZB purchased 100% of HATX and its land usage rights to the Huai’an property. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a gross floor area (“GFA”) of 82,218 sqm totaling 679 units, and started its second phase in 2020 with a GFA of 99,123 sqm totaling 873 units. As of October 31, 2022, the Company sold 669 out of 679 units of the first phase and pre-sold and pre-sold 80 units and 284 units, respectively, out of 873 of the second phase.

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NOTE 6 - OTHER RECEIVABLES AND DEPOSITS, NET


	September 30,		December 31,
	2022		2021
Advances to staff	$	700,984		37,573
Rental deposits		721,847		803,515
Prepaid expense		40,398		21,332
Prepaid tax		9,507,513		12,610,075
Other receivables		2,556,358		1,769,068
	$	13,527,100	$	15,241,563

Other receivables and deposits as of September 30, 2022 and December 31, 2021 were stated net of allowance for doubtful accounts of $42,051 and $515,604, respectively.

NOTE 7 – PROPERTY AND EQUIPMENT, NET


	September 30,		December 31,
	2022		2021
Furniture and fixtures	$	241,215	$	233,678
Computer and office equipment		337,144		368,165
Motor vehicles		550,331		737,987
Properties		2,130,971		2,372,989
		3,259,661		3,712,820
Less: Accumulated depreciation		(2,203,743)		(2,474,404)
	$	1,055,918	$	1,238,416

Depreciation and amortization expense for property and equipment amounted to $39,255 and $129,518 for the nine months ended September 30, 2022 and 2021, respectively.

NOTE 8 – INVESTMENT PROPERTIES, NET


	September 30,		December 31,
	2022		2021
Investment properties	$	32,732,469	$	36,449,956
Less: Accumulated depreciation		(10,137,881)		(10,109,287)
	$	22,594,588	$	26,340,669

Depreciation and amortization expense for investment properties amounted to $1,139,733 and $1,210,813 for the nine months ended September 30, 2022 and 2021, respectively.

NOTE 9 – INVESTMENT IN AND AMOUNT DUE FROM AN UNCONSOLIDATED AFFILIATE

The investments in unconsolidated affiliates primarily consist of SHDEW (19.91)% and SHTX (23)%. As of September 30, 2022, the investment amount in SHDEW was $12,480,075 and SHTX was $28,170.

SHDEW was established in June 2013 as a skincare and cosmetic company. SHDEW’s online Wechat stores had a membership of over ten million members as September 30, 2022. SHDEW is developing its own skincare products. SHDEW sells products under its own brands as well as the products of third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices and children’s apparel. SHDEW is improving its own online shopping platform where consumers can purchase its cosmetics and skincare products as well as products imported into China. The online shopping platform has been in operation since 2017.

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NOTE 10 - OTHER INVESTMENTS, NET

According to ASU 2016-01, where the Company has no significant influence, the investment is classified as other investments in the balance sheet and is carried under the measurement alternative method. The measurement alternative measures the equity investment at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer. As of September 30, 2022 and December 31, 2021, the carrying amount of the Company’s measurement alternative investments was $640,264 and $712,981, respectively.

The Company performs impairment assessment of its investments under the measurement alternative whenever events or changes in circumstances indicate that the carrying value of the investment may not be fully recoverable. Impairment charges in connection with the measurement alternative investments of nil were recorded in others, net in the Consolidated Statements of Operations and Comprehensive Income/(Loss) for the years ended September 30, 2022 and 2021, respectively.

NOTE 11 - GOODWILL

On April 4, 2020, the Company purchased 10% of LYSY from Nanjing Longchang Real Estate Development Group for 22.17 million RMB (approximately $3,398,213). As of September 30, 2022, the amount of $1,116,925 of goodwill represents the difference between the investment cost and book value.

NOTE 12– PROMISSORY NOTES PAYABLE

The promissory notes payable consists of the following unsecured notes to unrelated parties. Included in the balances are promissory notes with outstanding principal and unpaid interest of an aggregate of $1,408,490 and $1,568,455 as of September 30, 2022 and December 31, 2021, respectively.

The promissory note with a principal as of September 30, 2022 amounting to $704,245 bears interest at a rate of 0% per annum, is unsecured and has no fixed term of repayment. As of September 30, 2022, and December 31, 2021, the outstanding principal and unpaid interest related to this promissory note amounted to $704,245 and $784,228, respectively.

For the nine months ended September 30, 2022, the interest expense related to these promissory notes was $NIL.

NOTE 13– AMOUNTS DUE TO DIRECTORS


	September 30,		December 31,
	2022		2021
Lin Chi-Jung	$	429,425	$	502,663
Lin Hsin-Hung		20,415		22,733
	$	449,840	$	525,396

(a)	The balance due to Lin Chi-Jung consists of temporary advances.

The balances are unsecured, interest-free and have no fixed term of repayment.

(b)	The balances due to Lin Hsin-Hung are unsecured, interest-free and have no fixed term of repayment.

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NOTE 14- OTHER PAYABLES AND ACCRUED EXPENSES


	September 30,		December 31,
	2022		2021
Accrued staff commission and bonus	$	272,058	$	272,025
Rental deposits received		138,500		110,171
Bid bond		91,552		103,518
Dividends payable to non-controlling interest		189,519		211,043
Other payables		6,769,263		8,122,375
	$	7,460,892	$	8,819,132

NOTE 15 - ACCOUNT PAYABLE

Account payable was mostly derived from our property development of the Linyi project and the HATX project. As of September 30, 2022, and December 31, 2021, the Company’s account payable amounted to $21,368,935 and $25,120,074, respectively.

NOTE 16 – AMOUNT DUE TO AFFILIATES

As of September 30, 2022, the amount due to Shanghai Shengji (“SHSJ”), a shareholder of HATX,was $48,784,962. The amount due to JXSY was $499,317, which was an intercompany transfer for day-to-day operations.

NOTE 17 – CUSTOMER DEPOSITS

Customer deposits were mostly derived from our property development of the Linyi project and the HATX project, which was pre-sale collection from our customers. As of September 30, 2022, and December 31, 2021, the Company’s customer deposits amounted to $44,404,826 and $126,175,201, respectively.

NOTE 18 – INCOME TAX PAYABLE

The 2017 Tax Act was enacted on December 22, 2017. Due to the complexities involved in the accounting for the 2017 Tax Act, the SEC issued SAB 118, which provides guidance on the application of US GAAP for income taxes in the period of enactment. SAB 118 requires companies to include in their financial statements a reasonable estimate of the impact of the 2017 Tax Act, to the extent such an estimate has been determined. As a result, our financial results reflect the income tax effects of the 2017 Tax Act for which the accounting is complete, as well as provisional amounts for those impacts for which the accounting is incomplete but a reasonable estimate could be determined.

NOTE 19 - COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company leases certain of its office properties under non-cancellable operating lease arrangements. Payments under operating leases are expensed on a straight-line basis over the periods of their respective terms, and the terms of the leases do not contain rent escalation, or contingent rent, renewal, or purchase options. There are no restrictions placed upon the Company by entering into these leases. Rental expenses under operating leases for the nine months ended September 30, 2022 and 2021 were $147,842 and $64,150, respectively.

As of September 30, 2022, the Company had the following operating lease obligations.


	Amount
Within one year	$	92,858
Two to five years		—
	$	92,858

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NOTE 20 – STATUTORY RESERVE

According to the relevant corporation laws in the PRC, a PRC company is required to transfer at least 10% of its profit after taxes, as determined under accounting principles generally accepted in the PRC, to the statutory reserve until the balance reaches 50% of its registered capital. The statutory reserve can be used to make good on losses or to increase the capital of the relevant company.

According to the Law of the PRC on Enterprises with Wholly-Owned Foreign Investment, the Company PRC’s subsidiaries are required to make appropriations from after-tax profits as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) to non-distributable reserves. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion reserve and (iii) a staff bonus and welfare fund. A wholly-owned PRC subsidiary is not required to make appropriations to the enterprise expansion reserve but annual appropriations to the general reserve are required to be made at 10% of the profit after tax as determined under PRC GAAP at each year-end, until such fund has reached 50% of its respective registered capital. The staff welfare and bonus reserve is determined by the board of directors. The general reserve is used to offset future losses. The subsidiary may, upon a resolution passed by the stockholders, convert the general reserve into capital. The staff welfare and bonus reserve are used for the collective welfare of the employees of the subsidiary. The enterprise expansion reserve is for the expansion of the subsidiary operations and can be converted to capital subject to approval by the relevant authorities. These reserves represent appropriations of the retained earnings determined in accordance with Chinese law.

In addition to the general reserve, the Company’s PRC subsidiaries are required to obtain approval from the local PRC government prior to distributing any registered share capital. Accordingly, both the appropriations to general reserve and the registered share capital of the Company’s PRC subsidiary are considered as restricted net assets and are not distributable as cash dividends. As of September 30, 2022, and December 31, 2021, the Company’s statutory reserve fund was $3,986,618 and $3,986,618, respectively.

NOTE 21 - SEGMENT INFORMATION

The Company’s chief executive officer and chief operating officer have been identified as the chief operating decision makers. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.

The Company evaluates performance based on several factors, including net revenue, cost of revenue, operating expenses, and income from operations. The following tables show the operations of the Company’s operating segments:


	Three Months Ended September 30, 2022
	Property
	Brokerage		Real Estate		Investment
	Services		Development		Transaction		Others		Total
Net revenues	$	299,689	$	22,044,000	$	—	$	—	$	22,343,689
Cost of revenues		(235,981)		(19,067,787)		—		—		(19,303,768)
Gross profit		63,708		2,976,213		—		—		3,039,921

Operating expenses		(216,804)		(316,631)		—		—		(533,435)
General and administrative expenses		(422,388)		(361,827)		—		(5,834)		(790,049)
Operating loss		(575,484)		2,297,755				(5,834)		1,716,437

Other income (expenses)
Interest income		(7,890)		104,533		—		1,516		98,159
Interest expense		281,464		(535,376)		—		—		(253,912)
Other income, Net		69,323		572		(1,266,068)		—		(1,196,173)
Total other (expenses) income		342,897		(430,271)		(1,266,068)		1,516		(1,351,926)

Income (loss) before income taxes		(232,587)		1,867,484		(1,266,068)		(4,318)		364,511
Income tax		(722,928)		—		—		—		(722,928)
Net Income(loss)	$	(955,515)	$	1,867,484	$	(1,266,068)	$	(4,318)	$	(358,417)

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	Nine Months Ended September 30, 2022
	Property
	Brokerage		Real Estate		Investment
	Services		Development		Transaction		Others		Total
Net revenues	$	501,953	$	68,605,796	$	—	$	—	$	69,107,749
Cost of revenues		(756,178)		(60,077,817)		—		—		(60,833,995)
Gross profit		(254,225)		8,527,979		—		—		8,273,754

Operating expenses		(643,371)		(861,006)		—		—		(1,504,377)
General and administrative expenses		(940,200)		(1,255,794)		—		(417,224)		(2,613,218)
Operating loss		(1,837,796)		6,411,179				(417,224)		4,156,159

Other income (expenses)
Interest income		8,210		565,472		—		610		574,292
Interest expense		1,631,786		(4,230,570)				—		(2,598,784)
Other income, Net		(3,202,019)		(54,007)		371,263		(100,000)		(2,984,763)
Total other (expenses) income		(1,562,023)		(3,719,105)		371,263		(99,390)		(5,009,255)

Income (loss) before income taxes		(3,399,820)		2,692,074		371,263		(516,614)		(853,096)
Income tax		(2,081,832)		—		—		—		(2,081,832)
Net Income(loss)	$	(5,481,652)	$	2,692,669	$	371,263	$	(516,614)	$	(2,934,928)


	Three Months Ended September 30, 2021
	Property
	Brokerage		Real Estate		Investment
	Services		Development		Transaction		Others		Total
Net revenues	$	192,814	$	5,404,380	$	—	$	—	$	5,597,194
Cost of revenues		17,482		(4,198,023)		—		—		(4,180,541)
Gross profit		210,297		1,206,356		—		—		1,416,653

Operating expenses		9,733		(487,712)		—		—		(477,979)
General and administrative expenses		(457,113)		(735,789)		—		(5,834)		(1,198,736)
Operating loss		(237,083)		(17,145)				(5,834)		(260,062)

Other income (expenses)
Interest income		11,341		208,393		—		1,516		221,250
Interest expense		—		—		—		—		—
Other income, Net		158,862		(1,656)		191,245		—		348,451
Total other (expenses) income		170,203		206,737		191,245		1,516		569,701

Income (loss) before income taxes		(66,880)		189,592		191,245		(4,318)		309,639
Income tax		131,296		(1,359,503)		—		—		(1,228,207)
Net Income(loss)	$	64,416	$	(1,169,911)	$	191,245	$	(4,318)	$	(918,568)

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	Nine Months Ended September 30, 2021
	Property
	Brokerage		Real Estate		Investment
	Services		Development		Transaction		Others		Total
Net revenues	$	61,392,111	$	13,681,832	$	—	$	—	$	14,295,753
Cost of revenues		(780,908)		(11,124,630)		—		—		(11,905,538)
Gross profit		(166,987)		2,557,202)		—		—		2,390,215

Operating expenses		(108,842)		(2,357,009)		—		—		(2,465,851)
General and administrative expenses		(818,075)		(1,517,733)		—		(542,669)		(2,878,477)
Operating loss		(1,093,904)		(1,317,540)				(542,669)		(2,954,113)

Other income (expenses)
Interest income		78,229		672,026		—		15,217		765,472
Interest expense		—		—				—
Other income, Net		(345,214)		14,791		34,311,487				33,981,064
Total other (expenses) income		(266,985)		686,817		34,311,487		15,217		34,746,536

Income (loss) before income taxes		(1,360,890)		(630,723)		34,311,487		(527,452)		31,792,423
Income tax		386,603		(1,491,189)		—		(751,138)		(1,855,724)
Net Income(loss)	$	(974,286)	$	(2,121,912)	$	34,311,487	$	(1,278,590)	$	29,936,699


	Property
	Brokerage		Real Estate		Investment
	Services		Development		Transaction		Others		Total
As of September 30, 2022
Real estate property under development	$	—	$	121,416,669	$	—	$	—	$	121,416,669
Total assets		19,730,404		149,942,466		51,945,174		64,402,471		286,020,515

As of September 30, 2021
Real estate property under development		—		196,842,203		—		—		196,842,203
Total assets	$	36,252,955	$	264,622,607	$	29,298,167	$	71,274,490	$	401,448,219

NOTE 22 – RELATED PARTY TRANSACTIONS

We rented an office of nearly 192 square meters in downtown Shanghai for displaying purpose from Mrs. Zhang Shuqing, our related party, in the first quarter of 2022.

The Company’s subsidiary has made a loan contract with SHSJ, our related party, which have borrowed RMB 200 million.

NOTE 23 - SUBSEQUENT EVENT

In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred from October 1, 2022, up through the date the Company issued the interim financial statements and identified no reportable events.

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATIONS

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q

In addition to historical information, this Form 10-Q contains forward-looking statements. Forward-looking statements are based on our current beliefs and expectations, information currently available to us, estimates and projections about our industry, and certain assumptions made by our management. These statements are not historical facts. We use words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, and similar expressions to identify our forward-looking statements, which include, among other things, our anticipated revenue and cost of our agency and investment business.

Because we are unable to control or predict many of the factors that will determine our future performance and financial results, including future economic, competitive, and market conditions, our forward-looking statements are not guarantees of future performance. They are subject to risks, uncertainties, and errors in assumptions that could cause our actual results to differ materially from those reflected in our forward-looking statements. We believe that the assumptions underlying our forward-looking statements are reasonable. However, the investor should not place undue reliance on these forward-looking statements. They only reflect our view and expectations as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement in light of new information, future events, or other occurrences.

There are several risks and uncertainties, including those relating to our ability to raise money and grow our business and potential difficulties in integrating new acquisitions with our current operations, especially as they pertain to foreign markets and market conditions. These risks and uncertainties can materially affect the results predicted. The Company’s future operating results over both the short and long term will be subject to annual and quarterly fluctuations due to several factors, some of which are outside our control. These factors include but are not limited to fluctuating market demand for our services, and general economic conditions.

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand Sunrise Real Estate Group, Inc. (“SRRE”). MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes.

OVERVIEW

In October 2004, the former shareholders of Sunrise Real Estate Development Group, Inc. (Cayman Islands) (“CY-SRRE”) and LIN RAY YANG Enterprise Ltd. (“LRY”) acquired a majority of our voting interests in share exchange. Before the completion of the share exchange, SRRE had no continuing operations, and its historical results would not be meaningful if combined with the historical results of CY-SRRE, LRY and their subsidiaries.

As a result of the acquisition, the former owners of CY-SRRE and LRY hold a majority interest in the combined entity. Generally accepted accounting principles require in certain circumstances that a company whose shareholders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes. Accordingly, the acquisition has been accounted for as a “reverse acquisition” arrangement whereby CY-SRRE and LRY are deemed to have purchased SRRE. However, SRRE remains the legal entity and the Registrant for Securities and Exchange Commission reporting purposes. The historical financial statements prior to October 5, 2004 are those of CY-SRRE and LRY and their subsidiaries. All equity information and per share data prior to the acquisition have been restated to reflect the stock issuance as a recapitalization of CY-SRRE and LRY.

SRRE and its subsidiaries, namely, CY-SRRE, LRY, Shanghai Xin Ji Yang Real Estate Consultation Company Limited (“SHXJY”), Shanghai Shang Yang Real Estate Consultation Company, Ltd. (“SHSY”), Suzhou Gao Feng Hui Property Management Company, Ltd, (“SZGFH”), Suzhou Shang Yang Real Estate Consultation Company (“SZSY”), Suzhou Xin Ji Yang Real Estate Consultation Company, Ltd. (“SZXJY”), Linyi Shang Yang Real Estate Development Company Ltd (“LYSH”), Shangqiu Shang Yang Real Estate Consultation Company, Ltd., (“SQSY”), Wuhan Gao Feng Hui Consultation Company Ltd.(WHGFH), Sanya Shang Yang Real Estate Consultation Company, Ltd. (“SYSH”), Shanghai Rui Jian Design Company, Ltd., (“SHRJ”), Wuhan Yuan Yu Long Real Estate Development Company, Ltd. (“WHYYL”), and Shanghai Da Er Wei Trading Company Limited (“SHDEW”) are sometimes hereinafter collectively referred to as “the Company”, “we”, “our”, or “us”.

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The principal activities of the Company are real estate agency sales, real estate marketing services, real estate investments, property leasing services, property management services, and real estate development in the PRC.

RECENT DEVELOPMENTS

Our major business is real estate agency sales, real estate marketing services, real estate investments, property leasing services, property management services, and real estate development in the PRC. Additionally, we expand our business to the field of financial activities such as entity investment, fund management, financial services and so on.

Since we started our agency sales operations in 2001, we have established a reputation as a sales and marketing agency for new projects. With our accumulated expertise and experience, we intend to take a more aggressive role by participating in property investments. We plan to select property developers with outstanding qualifications as our strategic partners, and continue to build strength in design, planning, positioning and marketing services.

In October 2011, we established LYSY and own 34% of the company. During the first quarter of 2012, we acquired approximately 103,385 square meters for the purpose of developing villa-style residential housing. The LYSY project has divided into three phases. Phase 1 has completed construction of 121 units in May 2015 and sold 119 units out of all 121 units at the end of October 31, 2022. Phase 2 was divided into north and south area and completed construction of 84 units at the end of 2020. All 84 units have been sold during phase 2 by the end of October 31, 2022. Phase 3 began construction in first quarter of 2021and pre-sold 20 units out of 51units as of October 31, 2022. In September 2020, the Company expanded the Linyi project by purchasing additional 54,312 square meters in the amount of 228 million RMB for future development.

On March 13, 2014, the Company signed a joint development agreement with Zhongji Pufa Real Estate Co. (“SHGXL”). According to this agreement, the Company has obtained a right to develop the Guangxinglu (“GXL”) project, located at 182 lane Guangxinglu, Putuo district, Shanghai, PRC. This project covers a site area of approximately 2,502 square meters for the development of one apartment building. In 2016, the government issued a regulation prohibiting the by-unit sale of commercial-use buildings. The apartment unit sale for the GXL project was put on hold until the government reviewed our project’s status. During that time, we rented any unsold apartment units while not recognizing the units previously sold before the regulation. In March 2019, we received government confirmation that our project cannot be sold on a unit-by-unit basis going forward. The Company decided to continue operating the project by renting the units. These unsold units are recognized as investment in properties in Note 8. We also recognized all the units that were sold before the regulation in our financial statement for the fiscal year ended December 31, 2019.

SHDEW was established in June 2013 with its business as a skincare and cosmetic company. SHDEW’s online Wechat stores had a membership of over ten million members as of October 31, 2022. SHDEW develops its own skincare products as well as improving its online ecommerce platform. SHDEW sells products under its own brands as well as the products from third parties. The products include skincare, cosmetics, personal care products such as soaps, shampoos, skin care devices and children’s apparel. SHDEW has an online shopping app, “庭秘密,” where consumers can purchase its cosmetics and skincare products as well as products imported into China.

In October 2018, HATX purchased the property in Huai’an, Qingjiang Pu district with an area of 78,030 square meters. In December 2018, we established HAZB with a 78.46% ownership for the purpose of real estate investment and in March 2019, HAZB purchased 100% of HATX and its land usage rights to the Huai’an property. The Huai’an project, named Tianxi Times, started its first phase development in early 2019 with a GFA of 82,218 sqm totaling 679 units, and started its second phase in 2020 with a GFA of 99,123 sqm totaling 873 units. As of September 30, 2022, the Company sold and 669 units out of 679 units of the first phase and sold and pre-sold 80 units and 284 units, respectively, out of 873 of the second phase.

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RECENTLY ADOPTED ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU 2016-02 which establishes new accounting and disclosure requirements for leases. ASU No. 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. The Company adopted ASU 2016-02 in the first quarter of 2022 using the effective date approach to recognize and measure leases as of the adoption date. The Company has elected to utilize the available practical expedient to not separate lease components from non-lease components as well as the package of practical expedients that allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. At the date of adoption on January 1, 2022, this guidance had no impact to the Company’s condensed consolidated financial statements.

NEW ACCOUNTING PRONOUNCEMENTS

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenues and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting period. The most significant estimates and assumptions include revenue recognition, and the useful lives and impairment of property and equipment, and investment properties, the valuation of real estate property under development, the recognition of government subsidies, and the provisions for income taxes. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this Form 10-Q reflect the more significant judgments and estimates used in preparation of our consolidated financial statements. We believe there have been no material changes to our critical accounting policies and estimates.

The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our condensed consolidated financial statements.

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Revenue Recognition

All revenues represent gross revenues less sales and business tax.

Real Estate Property under Development

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Income Taxes

The Company accounts for income taxes under ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Deferred tax assets or liabilities were off-set by a 100% valuation allowance; therefore there has been no recognized benefit as of September 30, 2022 and December 31, 2021.

RESULTS OF OPERATIONS

We provide the following discussion and analyses of our changes in financial condition and results of operations for the period ended September 30, 2022 with comparisons to the period ended September 30, 2021.

Revenue

The following table shows the net revenue detail by line of business:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022	% to total	2021	% to total	% change	2022	% to total	2021	% to total	% change
Property management	440,717	2	374,292	6	18	873,352	1	1,002,290	7	(12)
House sales	21,902,972	98	5,554,527	94	294	68,234,397	99	13,293,463	93	413
Net revenues	22,343,689	100	5,928,819	100	277	69,107,749	100	14,295,753	100	383

The net revenue for the third quarter of 2022 was $22,343,689, which increased 277% from $5,928,819 from the third quarter of 2021. The net revenue for the first three quarters of 2022 was $69,107,749, which represented a increase of 383% from $14,295,753 from the first three quarters of 2021. For the third quarter of 2022, property management and house sales represented 2% and 98% of our net revenues, respectively. For the first three quarters of 2022, property management and house sales represented 1% and 99% of our net revenues, respectively. The increase in net revenue for the first three quarters of 2022 was mainly due to the recognition of revenue of Huaian Tianxi project at a certain portion.

Property Management

Property management represented 1% of our revenue for the first three quarter of 2022 and revenue from property management decreased by 12% compared with the same period in 2021.

House sales

For the first three quarters of 2022, the Company has recognized house sales of Huaian Tianxi project at a certain portion. House sales represented 99% of our revenue for the first three quarters of 2022.

Cost of Revenue

The following table shows the cost of revenue detail by line of business:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022	% to total	2021	% to total	% change	2022	% to total	2021	% to total	% change
Property management	383,745	2	4,187,784	9	(8)	1,175,877	2	1,228,121	10	(4)
House sales	18,920,023	98	4,056,273	91	366	59,658,118	98	10,677,417	90	458
Cost of revenues	19,303,768	100	4,475,051	100	331	60,833,998	100	11,905,538	100	410

The cost of revenue for the third quarter of 2022 was $19,303,768, which increased 331% from $4,475,051 during the third quarter of 2021. The cost of revenues for the first three quarters of 2022 was $60,833,998, which increased 410% from $11,905,538 during the first three quarters of 2021. For the third quarter of 2022, property management, and house sales represented 2% and 98% of our cost of

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revenue, respectively. For the first three quarters of 2022, property management, and house sales represented 2% and 98% of our cost of revenue, respectively. The increase in the cost of revenue in the third quarter and in the first three quarters of 2022 was mainly due to the company recognized the cost of revenue of Huaian Tianxi project at a certain portion.

Property management

The cost of revenue for property management for the first three quarters of 2022 was $11,175,877, a decrease of 4% from $1,228,121 in the same period in 2021.

House sales

For the first three quarters of 2022, the Company has recognized house sales of cost of revenue of Huaian Tianxi project at a certain portion. House sales represented 98% of our revenue for the first three quarters of 2022.

Operating Expenses

The following table shows operating expenses detail by line of business:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022	% to total	2021	% to total	% change	2022	% to total	2021	% to total	% change
Property management	345,750	65	165,805	30	108	801,036	53	683,995	28	17
House sales	187,685	35	387,860	70	(52)	703,341	47	1,781,856	72	(60)
Operating expenses	533,435	100	553,665	100	(4)	1,504,377	100	2,465,851	100	(38)

The operating expenses for the third quarter of 2022 were $533,435, which decreased 4% from $553,665 for the same period in 2021. The total operating expenses for the first three quarters of 2022 were $1,504,377, which decreased 38% from $2,465,851 for the same period in 2021. For the third quarter of 2022, property management and house sales represented 65%, and 35% of the total operating expenses, respectively. For the first three quarters of 2022, property management and house sales represented 53%, and 47% of the total operating expense, respectively. The decrease in the overall operating expense resulted from the decrease in property management for the third quarter and the first three quarters of 2022.

Property management

The operating expenses for property management for the first three quarters of 2022 were $801,036, an increase of 17% from $683,995 in the same period in 2021. The decrease is mainly due to the consulting expenses relating to the business.

House sales

The operating expenses for house sales for the first three quarters of 2022 were $703,341 which decreased 60% from $1,781,856 in the same period in 2021. The increase is mainly due to the operations of HATX project.

General and Administrative Expenses

General and administrative expenses in the first three quarters of 2022 were $2,613,218, a decrease of 9% from $2,878,477, in the same period in 2021.

Other income, net

Other loss for the first three quarters of 2022 was $2,984,763, a decrease of 91% from $33,981,064 for the same period in 2021. The decrease in income was mainly due to the lack of dividend received from SHDEW and the loss of transactional financial assets.

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Major Related Party Transaction

A related party is an entity that can control or significantly influence the management or operating policies of another entity to the extent one of the entities may be prevented from pursuing its own interests. A related party may also be any party the entity deals with that can exercise that control.

Amount due to directors

The total amount due to directors for September 30, 2022 was $449,840. The amounts due are as follows:

Amount due to Lin Chi-Jung

The balances due to Lin Chi-Jung consists of temporary advances at the amount of $429,424 and are unsecured, interest-free and have no fixed term of repayment.

Amount due to Lin Hsin Hung

The amount of $20,415 represents the salary payable to Lin Hsin Hung.

Amount due to affiliate

The amount due to SHSJ and JXSY, in the amount of $48,784,962 and $499,317, were intercompany transfers for day to day operation.

LIQUIDITY AND CAPITAL RESOURCES

For the first three quarters of 2022, our principal sources of cash were revenues from our house sales collection and property management business, as well as the dividend receipt from the affiliates. Most of our cash resources were used to fund our property development investment and revenue related expenses, such as salaries and commissions paid to the sales force, daily administrative expenses and the maintenance of regional offices.

We ended the period with a cash position of $10,607,248.

The Company’s operating activities used cash in the amount of $2,403,359, which was primarily attributable to the recognizing revenue of the real estate project.

The Company’s investing activities used cash resources of $28,505,003, which was primarily attributable to the investment in transactional financial assets.

The Company’s financing activities provided cash resources of $19,588,608, which was primarily attributable to the restricted cash of our real estate developments.

The potential cash needs for 2022 are for investment in transactional financial assets, construction for our development projects in the Huai’an project (HATX) and the Linyi project.

According to the public records, the Market Supervision Administrations of Baokang County, which is a county located within Xiangyang City, Hubei Province, China, is conducting an investigation into the business practices of SHDEW and some of its affiliates. SHDEW is in the business of selling cosmetics and other consumer goods online. While we own approximately 19.91% of SHDEW, we do not have any control or influence over its business practices. We are not related to this investigation, and we are unable to evaluate the merits of any allegations. At this stage, we are also unable to evaluate the impact on our future cash flow resulting from this investigation.

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Capital Resources

Considering our cash position, available credit facilities and cash generated from operating activities, we believe that we have sufficient funds to operate our existing business for the next twelve months. If our business otherwise grows more rapidly than we currently predict, we plan to raise funds through the issuance of additional shares of our equity securities in one or more public or private offerings. We will also consider raising funds through credit facilities obtained with lending institutions. There can be no guarantee that we will be able to obtain such funds through the issuance of debt or equity or obtain funds that are with terms satisfactory to management and our board of directors.

OFF BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A smaller reporting company is not required to provide the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

A.Material weaknesses

As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2021, we identified one material weakness in the design and operation of our internal controls. The material weakness is related to the Company’s accounting department personnel having limited knowledge and experience in U.S. GAAP. In response to the above identified material weakness and to continue strengthening the Company’s internal control over financial reporting, we are going to undertake the following remediation initiatives:

●	hiring additional personnel with sufficient knowledge and experience in U.S. GAAP; and

●	providing ongoing training course in U.S. GAAP to existing personnel, including our Chief Financial Officer and Financial Controller.

Since the first quarter of 2015, additional qualified accounting personnel have been hired and put into place to assist preparation of financial information, as required for interim and annual reporting, in accordance with generally accepted accounting principles in the U.S. As the newly implemented remediation activities have not operated for a sufficient period of time to demonstrate operating effectiveness, we will continue to monitor and assess our remediation activities to ensure that the aforementioned material weakness is remediated.

B.Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in the Company’s filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company’s management, with the participation of its principal executive and financial officers, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation and solely due to the unremediated material weakness described above, the Company’s principal executive and financial officers have concluded that such disclosure controls and procedures were ineffective for the purpose for which they were designed as of the end of such period. As a result of this conclusion, the financial statements for the period covered by this report were prepared with particular attention to the unremediated material weakness previously disclosed. Accordingly, management believes that the condensed consolidated financial statements included in this report fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows as of and for the periods presented, in accordance with generally accepted accounting principles, notwithstanding the unremediated weaknesses.

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C.Changes in Internal Control over Financial Reporting

Since the first quarter of 2015, we put into place additional qualified accounting personnel to address the aforementioned material weakness. This action strengthened our internal controls over financial reporting.

Except for the above, there was no change in the Company’s internal control over financial reporting that was identified in connection with such evaluation that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material developments in any legal proceedings since the disclosures contained in the Registrant’s Form 10-K for the year ended December 31, 2021.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit Number		Description

31.1*		Section 302 Certification by the Corporation’s Chief Executive Officer.

31.2*		Section 302 Certification by the Corporation’s Chief Financial Officer.

32.1*		Section 1350 Certification by the Corporation’s Chief Executive Officer and Corporation’s Chief Financial Officer.

101		XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q.

104		104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Filed herewith

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SUNRISE REAL ESTATE GROUP, INC.

Date: November 21, 2022
By: /s/ Zhang, Jian
Zhang, Jian, Chief Executive Officer, Principal Executive Officer

Date: November 21, 2022
By: /s/ Mi, Yong Jun
Mi, Yong Jun, Chief Financial Officer, Principal Financial Officer